Chapter 3: Sources of Credit

This set of vocabulary flashcards covers the definitions, functions, regulations, and various categories of credit sources and banking institutions as discussed in Chapter 3.

Credit (John Stuart Mill)

A transfer of capital from hand to hand to those more competent to employ the capital more effectively in production.

Functions of Credit

Includes pooling savings, investing funds based on careful analysis, diversifying risk, transforming short-term into long-term funds, and performing insurance and trust functions.

Financial Intermediaries

Credit institutions that serve as middlemen between lenders and borrowers to consummate credit transactions.

Financial Institution

A numerous and varied class of entities ranging in scope from pawnshops to investment houses.

Financing Companies

Defined under RA no. $5980$ as corporations or partnerships primarily organized to extend credit facilities to consumer, industrial, commercial, or agricultural enterprises.

Investment Houses

Investment banks concerned with the transfer of capital from those with surplus funds to those needing them for long-term activities.

Investment Banking

Consists of the non-bank sector that gathers funds for lending operations from sources other than deposits.

Monetary Board

The body that modifies regulation for investment houses regarding fund acceptance, marketing methods, placement terms, and fund uses.

Commercial Banking

Focuses on products and services designed for businesses, including deposit accounts, lines of credit, merchant services, and global trade services.

Savings and Mortgage Banking

A corporation organized to accumulate depositor savings and invest them in bonds or loans secured by bonds.

Rural Bank

Established under RA no. $720$ as amended, it is an agricultural bank designed to provide credit to borrowers in rural areas at reasonable terms.

Private Development Banks

A source of credit of recent origin which includes specialized institutions like Veterans Bank and Land Bank.

Veterans Bank

A bank authorized to grant loans for the establishment, expansion, or development of agricultural, commercial, industrial, or personal services.

Land Bank of the Philippines

As provided under section $74$ of RA no. $3844$, it finances government acquisition of landed estates for resale to small landholders and for purchase by agricultural lessees.

Sales Finance Companies

A private corporate venture that finances distribution by purchasing a vendor's instalment sales contract.

AOG Insurance

Comprehensive insurance (Act of God) under standard policies protecting the interest of finance companies, with costs included in the service charge.

Revolving credit

A loan agreement where a business enterprise borrows from a bank on a short-term basis up to a certain specified maximum amount.

Term loan

Loans granted by commercial banks to finance the acquisition of facilities such as machinery and equipment by manufacturers.

Stand-by commitment

An agreement conferring the right to a corporation to secure a term loan under specific terms for current or future purposes within an agreed time.